"Should I offer free shipping?"
That’s a question that I hear from a lot of subscription box brands.
Offering free shipping can be a great way to encourage people to sign up for your box; however, it can also destroy your profit margins if you’re not careful.
Here’s my $0.02 on whether or not you should offer free shipping.
First things first, you should have healthy profit margins and LTV to even consider doing this at all. “Healthy” will vary from brand to brand, but as a general ballpark number, you want to shoot for 50% gross margins and less than a 10% monthly churn rate. If you don’t have healthy profit margins and your customers aren’t sticking around long enough for you to make a profit, then you’re just digging yourself into a deeper hole at a faster pace by covering the customer’s shipping. So if this sounds like you, you should charge for shipping and fix the other parts of your business before you even consider relooking at this.
If you do have healthy margins and LTV, my take is that you should consider the time frame it takes for you to achieve profitability and then structure your “free shipping" offer accordingly. You will only want to offer free shipping to customers that are going to stick around long enough for you to make a profit. Usually, these are the customers that sign up for your longer-term prepaid plans like 6-month or 12-month subscribers.
Let’s say that you break even after someone has been a subscriber for two months. In this scenario, I wouldn’t offer free shipping to monthly subscribers because there is a large chunk of those monthly subscribers who just want to “try it out” and may cancel after the first month or two. By covering their shipping costs, you’re digging yourself into an even deeper hole with them.
However, it DOES make sense to offer free shipping for anyone that signs up for a 6-month or 12-month plan because you already have their LTV locked in and you can guarantee that you will make a profit off of those customer segments.
The added perk of structuring it this way is that you will find that some people who would have signed up for a monthly membership will now sign up for a six or 12-month membership in order to get the free shipping. So by strategically offering free shipping on longer-term plans only, you can increase LTV.